When the Glass-Steagall Act was passed, it was hoped that consumers would get some protection from banks using their money for speculative dealings. Over time, these protections weakened and the legislation no longer covered consumers the way it had. It took 66 years and many pieces of legislation to fully repeal Glass-Steagall and update the banking laws.

First Repeal Efforts

Senator Glass tried to repeal his own act in 1935. He believed that the act was causing undue damage to the securities markets, because banks were prohibited from underwriting corporate securities. He managed to pass a revision in 1935 granting banks this power, but Roosevelt argued that the language would restore old abuses. Subsequently, the final bill passed without Glass’s additions to it.

Continued Competition

Banks had a problem with their borrowers over time. In an attempt to help their best customers, banks issued commercial paper that certified their customers as borrowers from capital markets. This left banks with a lot of poor credit customers that eventually couldn’t borrow. Many in the financial industry viewed the regulators as having too much power, which led to several important decisions made during the Reagan administration.

Reagan Administration Changes

In an effort to give bank affiliates broader powers over their securities, a bill was put forth to allow banks to underwrite and use customer money for mutual fund investments (among other securities). Another sweeping change came in the form of the Competitive Equality Banking Act, which established a moratorium on bank regulators and prevented new securities activities. CEBA would buy congress some time to review the remaining legislation in Glass-Steagall and eventually finish the full repeal.